Homer Alaska - Opinion

Story last updated at 6:05 PM on Wednesday, October 5, 2011

Hammond believed all resources should contribute to Permanent Fund for maximum benefit of public

A Proper Role for the Permanent Fund

By Gov. Jay Hammond

(Editor's Note: Today most Alaskans become $1,174 richer, thanks to their Alaska Permanent Fund Dividend. The permanent fund and its dividend were created by the late Gov. Jay Hammond, who served as Alaska governor from 1974 to 1982, and his allies. The following is an excerpt from his new book "Diapering the Devil," which he was writing when he died in 2005. It was recently published by Kachemak Resource Institute and is now available in local bookstores. The title refers to the saying "petroleum is the devil's excrement," which was made popular by former Venezuelan Oil Minister and OPEC co-founder Juan Pablo Perez Alfonzo because of oil's potential to lead to government corruption and national impoverishment.)


Without a state income, sales or property tax, the only sustainable funding source Alaska has, currently, is the Permanent Fund. Certainly it should play a key role in our financial prospectus. Given my preference, I would have imposed on all our natural resources, sufficient taxes to contribute enough money to the Permanent Fund to cover costs for mitigating environmental concerns, management, enforcement or enhancement, plus an equitably distributed public benefit as mandated by our constitution. To date, only oil does so.

Timber, minerals and fisheries have contributed not one cent to the Permanent Fund. Instead, oil indirectly subsidizes all other development ... although Alaska's constitution mandates we manage all our resources for the maximum benefit of the people (and in my view that means all the people), from the very beginning that mandate has been largely ignored.

For example, early on Alaska had imposed a 1 percent severance tax on oil, a modest raw fish tax, a tiny stumpage fee on timber, and a nickel-a-ton tax on coal, the rationale being that we could adjust our tax structure later after companies started to do business up here. I believed this precisely backward. Instead we should have started out with, say, a 99 percent severance tax and worked our way slowly down until we started to get vibrations. At that point, we would have a far better idea of what the appropriate level of taxation might be to encourage development that met that constitutional mandate to maximize benefits. Once having determined that level, we should have stuck with it. Instead, since we really had no idea how many eggs we could snatch from golden geese without endangering the species, we changed our taxation policies repeatedly and, at this writing [2005], are contemplating doing so once again.

How much better it would have been for both the state and industry to establish a stable tax that met that constitutional mandate, yet encouraged development. At the level the state felt met that mandate, industry could either pursue development or leave the resource in the ground, on the stump, or in the water.

Initially, I had proposed that a severance tax of at least 12 percent be levied on all nonrenewable resources and one of 6 percent on "renewables" such as timber and fish. These would all go into the Permanent Fund and thereby give every Alaskan a sense of resource ownership, with the attendant support for resource development that could meet those four criteria I felt it crucial to assure healthy resource development:

1. Is it environmentally sound?

2. Do most Alaskans want it?

3. Can it pay its own way and not require state subsidies?

4. Does it provide maximum benefit to the people?